Sears Holdings looks to jettison Orchard Supply

DSN Retailing Today, May 23, 2005 by Laura Heller

HOFFMAN ESTATES, ILL. -- The pruning has begun at the new Sears Holdings Corp. with the announcement that the company intends to sell or spin off its Orchard Supply Hardware business. Industry watchers consider this chairman Eddie Lampert's first move to realize profits, post merger.

Orchard Supply operates just 82 stores in California, tiny compared to market leaders Lowe's and Home Depot, with approximately 1,000 and 1,900 stores, respectively. And with stores averaging just 40,000 square feet, the business has had trouble competing with the mammoth home centers. Sears doesn't break out sales for the business but rather includes the financials under what it terms specialty stores. But Sears paid $415 million for the 61-store chain in 1996, under the leadership of former chairman and ceo Arthur Martinez. One analyst estimated the company's worth to be about $300 million today.

But now that the merger of Sears and Kmart has been approved, the company is focused on growing its core broadline stores, according to Alan Lacy, vice chairman and ceo. "Sears Holdings is focusing its management attention and capital on the opportunities in our core business presented by the merger of Sears and Kmart," he said in a statement. "While we continue to believe in Orchard's business model and growth strategy, we are pursuing alternatives to provide Orchard Supply Hardware with the capital to grow its store base, while at the same time providing appropriate value to Sears Holdings."

Sears may not find a buyer for Orchard Supply and is considering spinning off the company while retaining a majority stake. As this issue of DSN Retailing Today went to press, more details were not forthcoming. The company has tapped Citigroup and Lehman Brothers to act as financial advisors to Sears on this issue.